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Fitch: No rating impact on Holmes Master Issuer PLC from account bank restructure
March 11 |
March 11 (Reuters) - (The following statement was released by the rating agency) LONDON, March 11 (Fitch) Fitch Ratings says there is no rating impact on the Holmes Master Issuer PLC's notes following a restructure of the programme's account bank arrangements. Fitch believes that the new arrangements sufficiently mitigate counterparty risk to the issuer account banks, although they deviate from the agency's counterparty criteria. The amendments comprise the creation of the Account A and Account B structures outlined below. Prior to the amendments, the programme account bank role was performed entirely by the Santander UK plc ('A'/Stable/'F1'). Consistent with Fitch's criteria for counterparty risk, the programme account bank role was subject to a minimum rating threshold of 'A' and 'F1' and replacement within 30 days of a rating downgrade. Account A The Account A structure is intended to hold time-sensitive cash funds. For example, Account A will hold reserve account funds, interest collections and principal accumulations for hard bullet maturities. In addition, Account A will hold any other cash funds that are not held under the Account B structure. The Account A structure comprises a panel bank arrangement administered by the agent bank, Bank of New York Mellon ('AA-'/Stable/'F1+'). Funds, excluding cash accumulations accruing for payment of bullet note maturities may be deposited with individual panel banks for a period of up to 90 days, or until the next quarterly interest payment date. Cash accumulations accruing for payment of bullet note maturities may not be deposited for periods of more than 30 days. Deposits will only be made to panel banks rated at or above 'A' and 'F1'. A minimum of 4 institutions will act as panel banks, and no more than one-third of Account A funds will be deposited with an individual panel bank for greater than 30 days if its ratings are less than 'AA-'/Stable/'F1+'. Fitch notes that the 90-day exposure period exceeds the 30-day remedial period envisaged under its counterparty criteria. However, in Fitch's opinion, the extended risk horizon (i.e. 90 days compared with 30 days) is mitigated by the concentration limits applied under the panel arrangement and the adequacy of transaction cash flows. Specifically, Fitch has tested the scenario where one of the panel banks default during the 90-day holding period with a loss of funds held by the affected bank. In this scenario, the ratings of the notes were not impacted. In Fitch's opinion, the resilience of the ratings also mitigate the first-to-default risk associated with the use of multiple account banks. Account B The Account B structure is intended to hold only non-time sensitive funds. For example, Account B may hold up to 50% of the issuer's non-bullet principal accumulations. The funds will be deposited with Santander UK plc, as long as the bank holds a minimum rating of 'BBB+'/'F2' and certain trust performance triggers are not breached. Fitch notes that the minimum rating of the Account B bank is not consistent with its counterparty criteria (i.e. 'BBB+'/'F2' compared with 'A'/'F1'). However, in Fitch's opinion this is mitigated by the combination of (i) Funding acquiring an additional share to the trust property which may be used to set-off against exposure to Account B, and (ii) the non-time sensitive nature of the cash holdings. Funding is the investor share of the Trust that has issued the outstanding notes under Holmes Master Issuer Plc. The remaining portion of the trust remains with the Seller (the Seller's Share). Under the amended structure, cash holdings in Account B will be accompanied by a one-for-one increase in Funding's share of the trust property. The increase will be achieved by the provision of a subordinated loan from the seller to Funding that will be applied to purchase an additional share of the trust property. Any losses incurred by Funding under the Account B structure will be offset against the loan provided by the seller. In effect, any cash losses by Funding will be compensated for by the additional share of the trust property. In addition to the minimum rating, the Account B arrangement will only continue as long as the reserve fund has not been drawn (this condition will not be curable), no bond has failed to be called on its scheduled maturity date, there have been no non-asset trigger events, and there are outstanding Z-Notes remaining in the programme. Fitch considers that the combination of additional triggers is particularly relevant given that the additional receivables are only provided on a one-for-one basis.
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